Stocks Decline As Tech Names Falter

Okay, very good morning to you. It is Friday, 17th of December. I hope you're doing well. And before I begin the briefing, don't forget to check out the Market Maker newsletter. Goes out daily, but a special edition goes out at the weekend encapsulating all of the major events that have happened, not only in global markets but single stock news, the crypto DeFi space, uh, SPAC deals, IPOs. So if you really want to stay informed of everything that encapsulates the whole week. And certainly if you're a student looking to improve your commercial awareness for any interviews or upcoming applications, this is hopefully going to be useful for you. So feel free to, to join. It's absolutely free. It goes out every day. As I said, special edition goes out on the weekend on a Saturday. But let's get straight to it and let's talk about what's been going on in markets. I'm not going to dwell too much on the charts because there's plenty for me to talk about. And so going to start predominantly on the close on Wall Street, where we did see quite heavy selling pressure yesterday. And in fact, the tech space got hit the hardest. The Nasdaq finished down around 2.5%, whereas the S&P and Dow were down about 0.9%. Big tech giants— Apple were down about 4% at the close last night, Tesla down about 5%. We'll talk about them a little bit more in a moment. But in terms of a short-term sector play, I think as the markets really digested the overall policy hawkish switch that we've seen from the Federal Reserve, although markets did rally post that event, I think upon further contemplation and digestion, we did start to see this idea, well, look, not only are we accelerating tapering, but we're also going to be hiking interest rates more aggressively. And so what you started to see was a bit of an exit out of high-performing growth tech names and a pivot more into those rate-sensitive, economic-sensitive companies. So financials were big outperformers yesterday. This can be evident as well, as you can see here, the Nasdaq's relative underperformance that we've seen through really throughout this week, and particularly after and post the Fed announcement which came later, um, also earlier this week. One of the things I wanted to talk about was a quick look on the COVID update, but on the US specifically, because we see a lot of attention drawn to the UK given the severity of the outbreak that's occurring right now. But the US hasn't really taken off to the same degree as yet, but it's likely to do so given how transmissible the new variant is. So a couple of stats to be aware of: over the past month, new cases have risen nearly 40% to a 7-day average of 121,000 infections per day is happening in the US at the moment, as you can see here. Deaths have risen 18% since mid-November, and COVID hospitalization rates have risen about 45% over the last month. So yeah, we definitely continue to, to keep an eye on this because of course from an overall global perspective, sentiment-led asset class, multi— across the different asset classes, you know, if the US starts to see meaningful impact from newly implemented restrictions, and this is going to be very important particularly in the context of the Fed who've kind of pushed ahead basing more predominant focus on the economy developments in the labor market and specifically inflation over the kind of risk so much to Omicron, although they did kind of warn they have flexibility to react in that regard. So this is kind of the early signs. Timings-wise, if you think about what we've had through the pandemic, the UK has always been very early and then the rest of the world starts to see the flare-ups. So would expect these numbers to continue to rise. Meanwhile, in the UK, obviously you would have seen a new record infections, just over 88,000. That's up nearly 75% on a 7-day rolling average. Uh, Chris Whitty, England's Chief Medical Officer, he warned that it's entirely possible that daily hospital admissions due to the Omicron variant could surpass previous coronavirus waves. Hospitalizations in the UK, you can see here, still low, very much so, comparative to where we were kind of this time last year, however, are heading up at the moment. And obviously it's a lagged effect to where cases are at the moment, and cases are likely to go much higher at this point in time. So despite the more mild symptoms, if that figure of cases is large enough, proportionately you would expect hospitalizations in step to rise as well. And I was looking at this chart from the FT last night. This is looking at acute hospital bed occupancy in London. And although it's tracking pretty much similar to what we had in 2020 to '21, we are well above what is the historical average over the winter period. So remember this Omicron outbreak, the reason why these numbers are already so high is that they're on top of the already what was existing Delta. It's just that Omicron now will become the more dominant strain going forward, much like what we've been seeing in London over the course of the last week, given that's seen a much greater acceleration than other parts nationally. So yeah, a lot of developments here and still warrants quite close monitoring, of course. The other thing is then flipping over to politics. One thing we've been talking about since the beginning of the week was this by-election happening in North Shropshire. Not that that's a particularly meaningful area, but it was going to act as pretty much a litmus test for sentiment overall for what has been a disastrous period for Boris Johnson and the Conservative party for a number of different reasons. Criticism over Downing Street parties, the new COVID restrictions coming in, the sleaze scandal that ultimately led to this by-election, which was the previous MP Owen Paterson, who had ran this seat since 1997, kind of breached parliamentary rules on lobbying. So it's all happening at the moment, um, for Boris Johnson. And of course it comes in the context of his biggest rebellion yet since his leadership began when 100 Conservative MPs voted against those protocols for COVID passes in England just 2 days ago. So it's the first time in basically nearly 200 years that the seat has flipped, and it's gone very comfortably to the Lib Dems, who were third last time this by-election happened in 2019. So really just a reflection, I guess, of the general perception of how the Tory party is doing at the moment. It's likely to just heap more, more pressure on Boris and questions internally within the party on, um, his validity to lead. I don't think it's anywhere near the point of some sort of rebellion to oust him to that degree, but it's certainly going to be causing him some severe headaches at this point in time. An interesting thing that I thought, um, was in the press this morning, and I think it's gone relatively unnoticed, is the UK has to drop key ECJ demand— European Court of Justice demand— on Northern Ireland trading. Now, very similar to, I think, what we've had with this whole kind of dead cat strategy. Boris was under pressure a week or so ago, and then he came out with a very unexpected and very rapid adoption of Plan B measures. And some would suggest that that's a bit of a distraction tactic to deflect the optics onto something else other than the negative press that he was getting. And I thought this was interesting because it's always been the UK's kind of red line. They don't ultimately want oversight out of Europe on some of the end trade deals that happen with Europe. But here they are now, and Frost is going to be speaking with his European counterpart today. And repeat, and reportedly the UK might drop that demand about the ECJ having no legal role in Northern Ireland Protocol in order to de-escalate tensions and to improve trade, trade negotiations. And so, yeah, I think overall it's probably, I guess, the strategy here from the government is one of which I think publicly Brexit is so far down the pecking order of priorities in the current COVID context. That it allows the government a little bit more flexibility then to get a deal done when in a post-pandemic world, touch wood, when that comes, you know, Brexit, if not done carefully and in a constructed way, is going to have a negative economic impact. And so if they can then start to incorporate these kind of factors to satisfy Europe to secure that trade deal, then all the better for it. And can they— you know, the reasons why they wouldn't have been able to do it before is because of people's feelings towards Brexit and what does Brexit mean and the stance at which the party has led to got Boris into government. But if everyone's distracted by everything COVID, well, then allows some movement for deals to be struck whilst people aren't concentrating on the details. I'm talking the public here about Brexit. So Yeah, um, just interesting to watch how this plays out. Moving over then, a few other things just really quickly to comment on. Goldman Sachs have come out with some new commentary about Brent crude, as you can see here. And the main thing they're saying is that they say $100 a barrel cannot be ruled out in 2023 as supply additions are expected to be slow to keep up with record demand. The banks say the recent sell-off is overdone, as unnecessary concerns about Omicron-related restrictions, and expects investors to buy the dip once asset managers reallocate money next year. The latter point I don't have too much of a problem with. The former point, I think Goldman are being a little bit complacent, if I, if I can say that. I mean, I've always been a bit of a COVID bear in a sense that I think that people have always underplayed this type of situation we're seeing now. I think anyone who's been following this channel for a while will probably recognize that from my view. But let's see. I mean, there certainly is very bullish commentary. And if we are talking about out into 2023 and beyond, sure, I'd say even naturally the kind of cycle of waves of COVID will have got incrementally smaller. Vaccines and further top-up boosters would have been rolled out. Yes, it's going to become ever more economically less impactful, most likely. And so don't disagree on that timeline. But yeah, I think being ultra bullish at this point in time, I'm not particularly as comfortable with in the short, medium term. In terms of the BOJ, they had their rate decision, kind of wraps up then the plethora of decisions we've had throughout the week. And, you know, it's been super interesting, of course, because we've had the Fed accelerate tapering, talked about more further 3 interest rate hikes in 2022. The Bank of England shocked the markets again and hike rates yesterday, while the ECB followed through with their plans about some transitional effects with their QE program as they fade out that pandemic emergency purchase program by March of next year. The BOJ, they've dialed back their emergency pandemic funding but maintained their ultra-loose policy. They extended financial relief that they do for smaller firms. And really, just to show the divergence here, if you know, the Fed are that way down the track in, in kind of reversal and draw of pandemic-induced stimulus. The BOJ is right on the other end of that spectrum. So no real reaction seen to that overnight and no real surprises from the BOJ. A couple of quick trending stock stories I wanted to touch upon. Rivian, um, just because the EV market was just exploding a few months ago, but the bubble has kind of semi-burst now, and there's a little bit of a reality check when these EV makers start to report their actual factual numbers. And Rivian shares declined about 4% overnight after market trade after revealing that they're going to fall short, um, of their target, their annual production target. They're only producing— they're aiming to produce around 1,200 vehicles, and they've still going to fall short, they said, by a few hundred even at that. They posted a net loss of $1.23 billion. Company is, is also planning on building an EV battery plant, which is going to cost them a cool $5 billion. This is all in part to achieve their manufacturing capacity target of around 400,000 vehicles annually starting by 2024. A bit of context, of course, Rivian has been a hot stock of late. They came off 4% last night on the back of this, but they were up 40% since their IPO, which was not that long ago. So yeah, context is important. Elon Musk, yeah, he's at it again. Of course, he's now disposed of around three-quarters of that 10% stake that he said a few weeks ago that he would offload. Um, he got rid of another roughly $900 million last night according to latest regulatory filings. I think what's so interesting about, about Elon Musk is just his use of social media tactics. We've talked about this plenty of times before. You probably would have seen about 2 days ago he came out saying, look, let's start accepting Dogecoin for some Tesla merch. And it's just so obvious the play, the tactical approach here. It's the more, the more he sells these shares, the more outrageous his tweets come. And they're very much in check with one another. As he tries to manage the exit to cover the taxes on exercising his options, basically. So, you know, since this has happened, though, one thing to be clear is that Tesla shares, if you go back, it's only around 5 or 6 weeks ago when we were peaking and, you know, Tesla's market cap was crazy at $1.25 trillion after this explosion that we saw in late October. Bit of a rain check now. We've broken down through a technical area of around 935 that had been holding support throughout the week, probably now shaping up for next area of support around 909, 910, which should be a gap down then to that, that jump that we saw on the weekend, on the week commencing the 25th of November. The loss here from the high then is now knocking on 25 heading to 30% if we get that move down to $900. So yeah, certainly a bit of a, a return to some degree of normality now after that crazy run that we had lately. The other one is, is Reddit. They've jumped on the IPO bandwagon. Their valuation is said to be around $15 billion at the time of its flotation. Again, all of this coming on the back of their popularity surge that they saw actually at the beginning of the year. I can't believe GameStop was actually at the beginning of the year. It feels like that was 2 or 3 years ago now. Um, so it's taken them a while. They've probably missed much of the euphoric kind of interest in Reddit, but nonetheless looking to take advantage and list, and that IPO is set to happen. All right, looking at the calendar for today, um, we've already had UK retail sales come out this morning. And just going to flash over to the calendar. So here, just having a look at that story, actually came in quite a bit stronger than expected for November, 1.4% against expected 0.8%, which was also the same as the reading in the prior month. The, the Stats Office said that widespread discounting from Black Friday was a large significant contributing factor, but There's two other things I think that are quite important. One is I think a lot of consumers were bringing forward their, their Christmas spending early because of fears of potential supply constraints, which has been very much kind of talked about in the press and thus becomes somewhat self-fulfilling where consumers want to take advantage as well of discounting over Black Friday. And then secondly, if you think about markets are forward-looking, right, and so Omicron has got worse and is going to get— it's going to probably result in further restrictions. And that's going to impede then likely at least on the high street sales. But obviously we'll see whether we see that behavioural shift to more online purchases. But the idea being here is that the Omicron variant spread could well mean that these numbers might have seen their short-term peak for the time being. Otherwise, just having a quick look elsewhere back at the calendar, and we got German IFO, and that's coming out 9 o'clock. We are expecting a slight downward move to 95.3 from 96.5. So good to get a sense check then on how German corporations feel at the moment. Remember, even before the Omicron spread, we were already seeing quite onerous restrictions being adopted in Germany and elsewhere mainland Europe. Remember, their overall vaccine take-up has been relatively low compared to their European peers, and so you would expect then general corporate sentiment to be fading a little bit. HICP final reading for eurozone at 10 is final, so not expecting too much movement there. And then if we look at the overall calendar for this afternoon, there's nothing major coming out of the US, so very much I think going to be a continuation of two things really. One, equities. Do we start to see a continuation move from what we had yesterday? Stocks traded fairly heavy, underperformance in tech, digestion over this whole kind of Fed pivot in a hawkish direction, which we've seen kind of echoed by some of the other major central banks, and also that then of Omicron still being a key factor as well. To throw in the mix, we've also got quadruple witching happening today. So as a reminder, refers to the expiration of stock index futures, stock index options, stock options, and single stock futures. And they all happen at the same time. And for the US indices, that's going to be at the NYSE open. All right, that is it. So I'm going to leave it there, let you guys have a, a good session ahead. Have a great weekend. Don't forget as well to check out the link I'll put on the bottom of this video if you're watching on YouTube to subscribe to catch that Weekend Market Maker newsletter. Alright, take care.